By ROBB MANDELBAUM
July 7, 2014 7:00 am July 7, 2014 7:00 am
How small-business issues are shaping politics and policy.
Exports are crucial to Dry Corp, a company that makes waterproof medical cast covers, and its sister company, Dry Case, which makes waterproof cases for smartphones, tablets and other gadgets. Together, the two companies employ 21 people, and each one sells about $1 million in products a year. About 17 percent of those sales come from overseas.
“Being seasonal products, it really helps to have partners on the other side of the world,” said Corey Heim, chief operating officer for the two companies, which are based in Wilmington, N.C. “So when it’s our winter and it’s slow, someone over there puts an order in and it really evens things out.”
But shipping abroad is risky, Mr. Heim said, and that is why his companies buy insurance for most overseas transactions from the Export-Import Bank, a government-run export financing agency created by President Franklin Roosevelt. “In the States, you can hire a collection agency or something like that” if the buyer does not pay up, he said. “But when we’re talking about overseas, if something happens politically, if there’s a war, or the company goes out of business, or any kind of risk factor, we can still get paid with Ex-Im.”
At the moment, small businesses like Dry Corp and Dry Case are caught in the crossfire as Republicans debate whether to kill off the 80-year-old Export-Import Bank, whose authorization will expire in September unless Congress renews it. (Democrats are largely united in support of the bank.)
As with so many government initiatives, or regulations, the debate is in part over the extent to which it benefits small businesses. And the case for the Ex-Im Bank, as it’s known, is somewhat murky. Participation by small business roughly mirrors the sector’s role in the broader economy: In 2013, 2,160 of the 2,775 exporting companies that used the bank, or almost 80 percent, were small businesses. But about the same proportion of the financing dollars authorized by the bank went to big companies.
This has been widely reported, as has the tremendous pressure that big companies and other bank supporters have put on small businesses to rally behind the bank. What is less noted is how small businesses actually use the Ex-Im Bank.
The bank is best known, and authorizes most of its money, for providing loans and loan guarantees to the foreign buyers of American goods (which is how the institution got its other nickname, “Bank of Boeing”). But small businesses, including Dry Corp and Dry Case, overwhelmingly rely on the bank for export insurance. In fact, small companies accounted for more than 90 percent of the bank’s insurance authorizations in 2013, and just over half the insurance dollars. (The bank’s working capital loan guarantees, which are used to finance the production of exported goods, are also popular with small companies. In 2013, 95 percent of all working capital loan guarantees and 70 percent of all dollars guaranteed went to small companies.)
The insurance protects against a buyer’s default for both commercial reasons and political instability, and usually reimburses 90 to 95 percent of the loss. Any creditworthy business is eligible for insurance so long as half the content in the exported goods is American. Under some policies, companies that meet the Small Business Administration’s definition of small and export less than $7.5 million in goods a year can use a streamlined application process and pay no deductible when they file a claim.
In effect, the insurance creates a cushion that allows exporters to offer more flexible terms. With their exports insured, Dry Corp and Dry Case, for instance, are willing to let overseas distributors pay in two months. “Before we had Ex-Im, we had to get cash-wire — basically cash upfront — before we could ship anything,” Mr. Heim said. “If it works for the customer, obviously that’s still good for us.” But, he added, others need flexible payment options.
“They’re bringing in our product to a country where our brand might not mean very much. So they have to spend a fair amount of time marketing, and building the brand, and that costs a fair amount of money,” he said. “If a company that’s starting to build our product and build our brand had to spend a million dollars for the product upfront, they wouldn’t have any money to spend on marketing. One of the things that the Ex-Im Bank and its credit terms allows them to do is it improves their cash flow.” That, in turn, allows those distributors to take a chance on relatively unknown products, like watertight cases for casts and gadgets.
The premiums vary by the type of policy, but in general, said Dolline Hatchett, an Ex-Im spokeswoman, small businesses pay about 50 cents for every $100 of goods shipped.
“The premium is so small, we don’t even factor it into our pricing,” Mr. Heim said. “It allows us as a small business that has to watch every penny to participate in this program and not really have to think about it.”
Some companies go years and never file a claim, but Mr. Heim said that last year, his companies needed the bank. At the beginning of 2013, an Australian importer bought about $10,000 worth of merchandise. “And basically a month later, we found out that they had gone out of business. Their C.E.O. was nowhere to be found and we couldn’t get in touch with anyone,” he said.
After filing a claim with the Ex-Im bank, he added, “We got 95 percent of it back.”